McKinsey & Company released a fascinating report in November 2014 titled The Bank of the Future.
The observations of author Somesh Khanna are very relevant to the credit union of the future with a few unique twists.
Observation 1: Branches will still be important but not the same
Khanna predicts branches will be fewer but will serve as “destinations for complex advice and problem resolution.” Credit unions may find that while necessarily fewer, the remaining brick and mortar venues will serve as gathering places to build member loyalty and strengthen a unique sense cooperative-oriented community.
Observation 2: Digital channels provide an opportunity to personalize the member experience
Credit unions capture an immense amount of information in the form of daily transactions, the artifacts of the operational environment. Yet, when aggregated, the individual transactions become the basis for transforming the way credit unions do business. Personalization of member interactions becomes possible when transactional data is aggregated and used to tailor individualized offerings and predict member behavior.
Aggregation is typically accomplished via a data integration effort, most often a data warehouse. Implementing such a solution is a daunting task for most credit unions. Fortunately, innovative vendors are now offering affordable solutions that allow credit unions of all sizes to make personalization a reality.
Observation 3: Senior Management needs to lead
Khanna notes that cross-functional collaboration is a success driver in building out digital channels. Accessing and integrating data enterprise-wide means technical and organizational barriers must come down. Senior Management by definition needs to take the lead to ensure the needed innovations move forward. A specific recommendation is to add a “Chief Digital Officer” role to drive the process.
Observation 4: Legacy systems are a hindrance
Financial institutions are notorious for maintaining long-standing technology platforms. Even without considering the digital revolution, keeping these dinosaurs alive is a huge resource drain. Add the demands of the new technology and credit union IT groups feel completely overwhelmed.
Luckily, credit unions have an opportunity banks generally do not. The cooperative credit union culture supports the pooling of resources and even data. This enables even smaller credit unions the chance to leapfrog existing technology obstacles and jump into the digital game.
Observation 5: Recalibrating the Efficiency Ratio
The move to a digital enterprise holds the promise of attacking the overhead cost side of the efficiency ratio. Yet, perceived upfront costs often scare Credit Union leadership away from adopting an aggressive digital strategy. This is a big mistake. Most indicators suggest delay will cost more in the long run. Credit unions must evolve to take advantage of the inherent efficiencies (and competitive opportunities) of being a digital enterprise. In doing so, they will build the foundation for ongoing viability.